Suppose a startup is looking to raise capital for a growing tech company. The founders are presented with term sheets from two different venture capital firms. The following highlights contain the main details and terms contained within each potential deal structure. Investor A Investment amount: $4,000,000 Investors: Investor A Type of Security: Non Participating Preferred Equity Postmoney Valuation: $9,000,000 Option Pool: 25% of post money value Liquidation Preference: 1X Anti-dilution: Weighted Average Board Structure: Board of 3 members; Investor A holds 1 seat No Shop Clause: 30 days Investor B Investment amount: $6,000,000 Investor Split: $3,000,000 by Investor B and $3,000,000 by Investor C Security Type: Participating Preferred Equity Premoney Valuation: $6,000,000 Option Pool: 15% of postmoney value Liquidation Preference: 1X with 2.5X participating cap Anti-dilution: Full Ratchet Board Structure: Board of 3 members; each investor holds 1 seat Pay-to-play: All investors required to purchase shares during any future down round or forfeit board seat No Shop Clause: 6 weeks Suppose the company does not do great in the near future and has to raise funds again but at lower valuations. How will the founders fare under each term sheet scenario? Hint: There are really just two or three main items contained in the term sheets that need to be identified and explained in terms of how they hurt or benefit the founders during a possible down round.